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Read Market Structure Like a Pro in 24 Minutes — Transcript

by Lewis Kelly · 4,448 words · 674 segments · language en · Watch on YouTube

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0:00How often do you look at your chart and
0:02ask yourself, is it bullish? Is it
0:04bearish? Or are we just stuck in a
0:05range? Let's try it right now. Look at
0:07this chart. For you, is this bullish,
0:10bearish, or is it stuck in a range? Lock
0:13in your answer and I'll reveal in a
0:15moment. Now, maybe you said bullish.
0:17Maybe you said bearish. And whether you
0:18are right or wrong is not what's
0:20important. What's important is that
0:22although you guessed, you're not
0:23actually 100% confident. And that's the
0:26biggest problem with market structure
0:28for 99% of traders. No matter what you
0:30decide, you aren't fully confident. Now,
0:33in this video, we are going to learn how
0:35to read market structure like a pro,
0:37including my golden rule for how you
0:40know when something is a real break or
0:42whether it's a fake out and a reversal.
0:44So that whenever you look at a chart
0:45next time, you more confidently have an
0:48answer. Now, if you said bullish,
0:50congratulations, you were correct.
0:52However, being right once isn't going to
0:55make you money on the long term. What we
0:57need is a proven and repeatable way to
1:00map market structure so that every
1:02single time we have the same thesis. By
1:05the end of this video, you'll understand
1:06exactly why this was bullish using my
1:09rules and more importantly, how this
1:12exact trade was available using the
1:14strategy I'm going to share with you.
1:16So, this is going to be a full A-Z
1:17course. We're going to start right at
1:19the beginning and this is going to get
1:20progressively more advanced as we go on.
1:22Let's dive in. So, to lay the
1:24foundations, we need to understand what
1:26actually is market structure and why is
1:29this thing so important and so powerful.
1:32Simply put, market structure is the
1:35understanding of the overall direction
1:37of price. You see, me and you, we're
1:39just little fish in this market. What we
1:41need to do is piggyback the big money to
1:44understand where the market is actually
1:46going and then try to profit from that.
1:48And there is no better way of
1:50understanding that than the directional
1:52trend of price. And so market structure
1:54at all times will create a series of
1:57swing points. These swing points we can
1:59observe like this and they are basically
2:01the external points in price before a
2:03reversal. What do I mean by that? You
2:05see this area of price sits on the
2:07outskirts. It's a swing point. And first
2:10we're going up, then we start to come
2:11down. This creates what we call a swing
2:15and it's very simple. As swings get
2:17progressively higher, breaking previous
2:19highs, that is simply bullish structure.
2:23In this environment, you will have a
2:24higher low, meaning that this low right
2:27here is higher than the previous one.
2:29And you'll have higher highs, meaning
2:31this high right here is higher than the
2:33previous one. And what you'll notice is
2:35every time we go up, we break the
2:37previous high.
2:39This is what we refer to as a break of
2:40structure. And so in this specific
2:42incident, what we would be looking at is
2:44a continuation in the overall direction.
2:47You would expect price to have some type
2:48of pullback and some type of
2:50continuation. That ultimately is bullish
2:53structure.
2:54Now, structure always operates inside of
2:56one range at all times. But we need to
2:58do is define that range. And so how we
3:01define a range is by taking the current
3:03swing low,
3:05which is the low that is responsible for
3:07the most recent break of structure. So
3:10when we break this high,
3:12like so, this we refer to as a break of
3:14structure.
3:16Now, the low that is responsible for
3:19breaking that high is this one right
3:21here.
3:22This low becomes our swing low. And then
3:25this high becomes our swing high. And so
3:29as of right now, this is all you need to
3:31pay attention to. It's just this range.
3:34Whilst we're trading inside of this
3:35range, we are a buyer looking to go
3:37higher. And so as price comes lower, we
3:40want to wait for confirmation and simply
3:42capitalize on trading above these highs.
3:46And it sounds simple in theory, but I'm
3:47going to show you why it's actually a
3:48little bit more complicated and
3:50ultimately how we're going to fix that.
3:51So, the opposite side of things is
3:53obviously bearish. In a bearish
3:55environment, it's the exact same as
3:56bullish, but in reverse.
3:58And so any point in time, we are
4:00creating a series of lower highs, lower
4:02lows, lower highs, and lower lows.
4:05You can see quite clearly here that
4:06we're breaking structure each time on
4:08the downside.
4:10These breaks of structures
4:12are simply what we refer to as a bearish
4:14trend. You can see that each low is
4:16getting progressively lower
4:18and each high is also getting
4:19progressively lower.
4:21This simply means sellers dominate.
4:25Below previous lows, buyers step back
4:28in, try to regain control of price. We
4:31this level, sellers regain control and
4:33push us lower. So, at this point in
4:35time, it's clear that sellers are the
4:38dominant force in the market. And as
4:40small fish in this market, we need to
4:42piggyback big money. And so, we can
4:44clearly see that big money is favoring
4:47to go lower. And so, that is our simple
4:50bias. That is how you primarily use
4:52market structure to define your
4:54direction. So, let's look at a practical
4:57example of this.
4:59Clearly put, right now you can see that
5:00we have a swing point. Right? It's the
5:02edge of price that causes a reversal. We
5:05have a swing high and we have a swing
5:07low. From here, what we see is that
5:09buyers step back up and regain control
5:11of price, pushing us above the previous
5:13high.
5:14This is a break of structure.
5:17At this point, you can conclude that we
5:18are indeed bullish.
5:20Then you can see price puts in a new
5:22high up here and then comes back
5:25as a reversal to this low. And so, this
5:28high right here that produces the
5:30reversal
5:31on the edge of price is our new swing
5:34high. Now, at this point in time, this
5:37being our swing high,
5:38our swing low is of course this one.
5:40Because this is the low that broke the
5:42high and put in the most recent high.
5:45And so, what you can do a simple method
5:46that you can use to make this easier
5:48is you can take from here
5:51across to the high
5:54like so.
5:55You can pull it out and anything inside
5:57of this price was inside of this leg.
6:00When we break this structure here, the
6:03lowest point in price, the lowest point
6:06of price inside your box
6:08is the swing low, which is right here.
6:11It's very simple. It's called the box
6:12method. From there, we can see the price
6:14retraces back down, respects this swing
6:18low, and then continues trading higher
6:21to give us another break of structure.
6:23So, clearly, we are now bullish. Now,
6:25what would we expect? We would expect
6:27price on this new swing high to have a
6:30retracement back down. We would also
6:33expect that this swing low right here is
6:35going to hold.
6:37And so, we can draw a swing low, and we
6:38can pull price across. We can see we do
6:41have a retracement.
6:42This is our swing low.
6:44And this is our swing high.
6:47And all our expectation is is that price
6:49has a pullback and then continues.
6:52And here we can see
6:54again, we take out the highs, which
6:56gives us another break of structure.
7:00And we are just continuing in this
7:02trend. And so, now, where is our swing
7:04low?
7:05Right? Because I see a lot of people
7:07make the mistakes of using these lows in
7:09here as swings. So, then when they get
7:11broken, they become bearish. That's not
7:13the case.
7:14The high was put in here, but the swing
7:16low,
7:17if you take the box from this high, and
7:21you see where it got broken,
7:24the lowest point inside of this box
7:26is right here.
7:28This is our swing low. So, now we have a
7:31swing low, and we have a new swing high.
7:34And so, you guessed it. What do you
7:35think comes next? We're expecting price
7:37to have a pullback, to not trade below
7:40this low, and to continue trading
7:42higher. And that's exactly what we get.
7:45And then price breaks again structure to
7:48the upside. And so, you can see here,
7:50right? Time and time again, the price
7:53breaks a high, doesn't break the low,
7:55breaks the high, doesn't break the low,
7:58breaks the high, doesn't break the low,
8:01breaks the high. This is obviously a
8:03bullish trend. In this environment, you
8:04want to be focused on trading a strategy
8:07that is focused on capturing these lows
8:10and just simply trading bullish
8:12continuations.
8:14Now, let's take a look at real breaks
8:16versus fake breaks. A real break of
8:19structure is when you have a candle
8:21closure above a swing high or in a
8:24bearish example, a candle closure below
8:27a swing low. This means that we have
8:30accepted price past the previous swing
8:32point and is therefore safe. A fake out,
8:36on the other hand, is when you have a
8:38movement above the swing point but is
8:40ultimately rejected and becomes a wick.
8:43This means price has not been accepted
8:46and therefore is unsafe to trade. The
8:49most common fake out that fails most of
8:52the time is the pro trend shakeout. This
8:55happens when price is bullish, revisits
8:57a strong swing point, tries to go below
9:00it, fails, and then reverses. These
9:04often then continue with the trend.
9:06Okay, now let's use the same price
9:08action and let's find some examples of
9:10how a lot of people would get faked out
9:12in these scenarios. And so for this,
9:13we'll go all the way back to this point
9:16right here.
9:17And we will
9:19pull price to here. Now, to do this, I'm
9:21going to need to turn on my indicator.
9:24And so I'll just turn that on.
9:30Okay, so now I have my indicator on,
9:32which automates my market structure for
9:33me. That simply just took my rules, put
9:35into an indicator, and now it maps it
9:37for me instead of me having to do it
9:38myself.
9:39And what we can see from our dashboard
9:41up here is that the 15-minute time frame
9:43is currently bullish. The 1-minute time
9:44frame is also currently bullish. So if
9:46we look at where we are, what you'll
9:47notice actually something that I didn't
9:49pick up on at the beginning because I
9:51wanted to save it specifically for this
9:53section to not confuse you.
9:55You'll see that actually after price had
9:57a break of structure here, continued to
9:59the upside, had a pullback, and then
10:02another break of structure right here,
10:04you'll notice that there's this very
10:05small little pullback right here that
10:08actually meets the rules for what I
10:10consider a pullback. And so, that's why
10:12my indicator plotted it. And then you
10:14can see we have a small little pullback
10:16and then a continuation. And so,
10:18actually, the swing low here is here.
10:20You can see my indicator has already
10:22mapped it. Now, look closely at how
10:25price reacts to this level.
10:28Notice that price delivers back into it
10:31aggressively. We wick below that low,
10:34fail to close below it. We wick it
10:36again, fail to close below it. This is
10:39what we call a fakeout. In this specific
10:42instance, we would actually be expecting
10:44that price continues carrying on in the
10:46direction of the trend.
10:48And as you can see, it does exactly
10:49that.
10:50Now, here we have another example of a
10:53fakeout. But notice how these are
10:56different. You see here, we wick above
10:59the high, right? You can see if we look
11:01closely, we wick above the high, we do
11:03not close above the high, and then we
11:04have a reversal. So, right now we have
11:06not broken that, which is why we don't
11:09have any break of structure signal here
11:11from the indicator.
11:13Now, remember what I said. A lot of the
11:15times, the fakeouts that end up
11:18reversing and continuing are the ones
11:20that are in the direction of the overall
11:22trend.
11:23The 15-minute is bullish.
11:25Break of structure is here. Swing low is
11:27down here. So, we fakeout the strong
11:30low.
11:31Now, we're faking out a weak high.
11:34So, we're not really expecting that this
11:36fakeout is actually going to result in a
11:38meaningful sell-off. If anything, it's
11:40probably going to continue trading
11:41higher because the overall trend is
11:43higher. This is where many people get
11:44fakeouts wrong as well, or liquidations,
11:46for example. Not every single time we
11:49wick below a level, it's a liquidation.
11:51You need to be making sure that you're
11:52doing it when you're trading in
11:54direction of the trend. And then we can
11:56see clearly that we eventually break and
11:58close above it, which gives a new break
12:00of structure, and therefore,
12:03automatically moves my swing low down to
12:05here.
12:06And so, now what you can see, again, is
12:08I have a new structural range.
12:10And so, you can see my indicator has
12:11just plotted on the new swing high and
12:14that's where we are. Now we are inside
12:16of this swing low to this swing high and
12:18all we're expecting realistically is a
12:21continuation of higher prices. And so
12:23let's just play out and how price works.
12:26Price is pulling back.
12:32And now we're approaching the swing high
12:34and as we break it, the indicator should
12:36just shift to new structure points. You
12:38see, now we've broken structure here.
12:40Now we have a new swing low. So buyers
12:43are still in control as long as we stay
12:45above this low and it's that simple and
12:47we're just going to continue trading in
12:49the direction of the trend. And so
12:51again, the same thing. Notice that this
12:53is a break and a close. Yes, it's small
12:56but that is not a fake out. We have
12:58closed above that high, therefore this
13:00is an accepted break of structure.
13:03Now what we have is a wick above that
13:06high. So we do not close which means we
13:09do not get a new break of structure. Now
13:11again, this is where people will get
13:12into a lot of trouble because people
13:15that don't understand that this is just
13:16a fake out, they will look at this and
13:18they'll say we're putting a high, we
13:19come back, new high, now my low is down
13:22here. And so when that low gets taken,
13:24they all of a sudden think that price is
13:26bearish.
13:27But as you will come to understand,
13:28price is still bullish and we are still
13:30going to continue in that overall
13:32direction of price.
13:36All right, as we can now see we've come
13:37into this really extended range and
13:39we're heading back toward the swing
13:41highs and then we shoot up, new break of
13:44structure, new swing low. So again,
13:47right now we are still bullish.
13:49And you'll just notice how many times
13:52when we shift bullish, we shift bullish
13:54once,
13:55we have another one, so that's 1 2 3 4 5
14:006 7 7 times out of these seven simple
14:05times
14:06every single time price has obeyed the
14:10rules behind the structure.
14:18>> Now what we can see is that after this
14:20we have come for a long extensive
14:22complex pullback. Eventually we bottom
14:24out and then we start trading to the
14:26upside. But here's another trap. You see
14:29many traders after this now would
14:30continue trying to trade long and it's
14:32understandable. It's in direction of the
14:34trend.
14:35But one thing they haven't picked up on
14:37is the liquidity that's sitting right
14:39here. You see again my indicator also
14:41has liquidity attached to it. I have the
14:42New York low and previous day's low just
14:45sitting at these equal lows. For me this
14:48is a clear sign that I should avoid
14:50trying to long from here and simply wait
14:53for these lows to be taken before I even
14:54think about trying to go back long.
14:58And now look at this.
15:00So we've come back to the low. We've
15:01broken through the low, but notice
15:04something very interesting.
15:05We actually haven't closed below it.
15:08We've only wicked, which again is what?
15:11A clear sign of a fake out. And what do
15:13we know? That fake outs that happen to
15:16lows that are pro trend are often times
15:20traps for traders and should be avoided
15:23and instead they should continue trading
15:25with the overall trend, which is why in
15:27my indicator I do not have wicks as
15:30breaks of structure because they are
15:31not, especially when they're in
15:33direction of the overall trend. And you
15:35can see from here we wick the low and
15:37then we continue back again to those new
15:40highs. And so every single time in this
15:43entire price leg, which spans three
15:46weeks of price action
15:48every single time that we come into the
15:50market our directional bias is clear and
15:53it plays out to perfection. Now let's
15:56move on to the structure trap and this
15:59what I'm about to cover is what gets so
16:00many people caught on the wrong side of
16:02the market and if you would have been
16:04one of those traders, you would have got
16:05destroyed in this price condition. Now
16:08if you want this exact indicator on your
16:10charts and you want to see hundreds of
16:12others who are using this indicator
16:14every single day to get results trading,
16:16then check the link in the description.
16:18So, now the structure trap that I see so
16:21many times get people on the wrong side
16:22of the market is mistaking internal
16:25structure and external structure. So,
16:27what does that look like? A lot of the
16:28times people think that market structure
16:29is just this simple thing that moves
16:31like this. It's not. If it were that
16:34easy, everybody would be able to master
16:35it. The reality of market structure is
16:36that often times it looks like this,
16:38where price is having multiple legs
16:40inside of a price leg that can actually
16:42be overwhelming and confusing for most
16:45people. And so, this is what the market
16:46actually looks like. And so, you can see
16:48how these simple up and down straight
16:51lines don't really apply to price, which
16:53is completely fine, because that's the
16:54reality of market structure, and that's
16:56what we're here to solve. So, the same
16:58thing still applies, but what you're
16:59looking at isn't one market structure,
17:02it's two different types of market
17:04structure inside of one price. And it's
17:06very important to distinguish between
17:07them both, otherwise you will be at risk
17:09of getting slaughtered. Here is the
17:11swing low. So, nothing changes. You can
17:12see here we put in a swing high, and we
17:14have a break of structure.
17:16Again, same box method.
17:18In here to the moment that we break it
17:21is inside of this high to this low. It's
17:23inside the range. Everything inside of
17:25this box is internal structure. So, when
17:28price comes down
17:30and you see bearish right now, that is
17:32just internally bearish, right? We have
17:35internal lower low.
17:37Again, internal lower low, internal
17:39change of character,
17:41internal break of structure, break of
17:43structure, break of structure. Same
17:45again.
17:46Internal
17:47is bearish. It's always like that. Every
17:49time you put in a swing high, and then
17:51you come to pull back before you
17:53continue higher, you will have internal
17:56structure, and it will look like this
17:58over and over and over again. Now, the
17:59key here, and something that will put
18:02you ahead of everyone else, is using
18:04internal with external. Let me show you
18:07what I mean. You see, every time the
18:10internal is bearish in a bullish price
18:12leg, it will start out bearish,
18:15and eventually at some point it will
18:16shift from being bearish, break of
18:18structure, to bullish, change of
18:21character.
18:22When this happens,
18:24this is the early sign of the external
18:26continuation. So, what you want to do is
18:28identify these internal shifts,
18:31and then this is your confirmation that
18:32the trend is now reversing. When you get
18:35this, you can then get involved on the
18:37expansion higher.
18:39Right? Same thing will happen time and
18:40time again. After you put in a new swing
18:42high, we will start to come down bearish
18:44like this.
18:47And then, at some point, we will shift
18:49back to bullish.
18:51And when we have this shift back to
18:53bullish, this is where the magic
18:55happens. This is where you can actually
18:56take trades, and you want to take the
18:58trade from here and ride it to the
19:00external swing high.
19:02What you don't want to do is be the type
19:04of trader that thinks that the internal
19:06structure is what they should be
19:07trading, because so many times you will
19:09end up getting caught on the wrong side
19:11of the market with super low risk
19:13reward.
19:15Let me show you what that actually looks
19:16like. Again, the same price action that
19:17we've just been through. Let's take a
19:19look at it right from the beginning
19:21and look at our internal structure.
19:23Again, I'm going to toggle my indicator
19:25here because it just makes life simpler,
19:27because a lot of the times internal
19:29structure is even more messy than
19:31external structure.
19:33So, again, you can see here,
19:35we put in a new swing high up here,
19:37this internal break of structure,
19:40low internal break of structure, here
19:42internal change of character. So, right
19:44here, what we're seeing is the reversal.
19:47This is the confirmation that price is
19:49now heading towards these highs
19:52before it's even happened. When we break
19:54here, we know that the next destination
19:56is going to be here, and that is before
19:59price has actually played out. That is
20:02the edge.
20:03Let's look at the next price leg.
20:06Here we can see
20:07internal break of structure. So, now the
20:09internal is bearish, right? As you can
20:11clearly see, internal bearish.
20:14What you don't want to be doing is be
20:15the trader who's trying to trade short
20:17from this leg, because look what happens
20:19to you. You get a stop loss, and then
20:21you're wondering why you're getting a
20:22stop loss. Because you're trading
20:24internal structure. The external
20:26direction is still bullish. Then you can
20:28see what? We have an internal change of
20:30character when we break this low.
20:33We have an internal change of character
20:34when we break this high.
20:36That's our confirmation to go. And so
20:37again, if we zoom out, right here,
20:41we can expect that we are going right
20:43here before we've even got there. And so
20:45before the market has even done
20:46anything,
20:47at this break,
20:49before we've got it here, we have all of
20:51this price action that we are highly
20:53confident
20:54that we will end up reaching there.
20:56And you can see it happen multiple times
20:58in this price leg. We internal change
20:59character, put in a high, pull back, new
21:02internal break of structure. Notice what
21:04this is.
21:05A fakeout.
21:07Wick below the low and then rally
21:09straight to the swing high.
21:12Now we're putting a new swing high,
21:14the internal structure resets, and then
21:16it's the same thing again.
21:18Internal break of structure. Now the
21:20internal is bearish. Another internal
21:22break of structure. Another internal
21:23break of structure. And then eventually,
21:25when we shift the highs,
21:27we've already taken the swing highs, but
21:29this is
21:30where the probability is extremely high
21:34that we're going to end up taking the
21:35swing highs up here. Again, next
21:37example. We put in the swing high,
21:39internally bearish, internal bearish,
21:42internal bearish, internal bearish. So
21:44internally we're trading lower.
21:48Now, here's what's interesting. In this
21:50instance, we have an internal change of
21:52character toward the upside. But again,
21:54remember this is the trap. Because not
21:56only do we have an internal change of
21:58character, we also have liquidity.
22:00Remember? Right here we have previous
22:02day's low and New York low. So while you
22:04might see this and think that it's time
22:06to go, this is a trap. That is also why
22:08it's important to pair liquidity.
22:10And then we take the lows,
22:12and we have a new internal break of
22:14structure.
22:15And so let me show you the example of
22:17the trade that we looked at in the
22:18beginning. Right now, we are externally
22:21bullish. So the expectation is that we
22:22will trade to here. We're internally
22:24bearish.
22:25So for now, we can sit on our hands and
22:27wait.
22:28Then we have realignment.
22:30Here you can see the reversal.
22:33We go from being internally bearish to
22:35internally bullish. So, right now, at
22:38this very moment, we have the
22:40expectation that price is going to go to
22:42here.
22:43And we are here.
22:44So, before we're here, we're here, we
22:46expect it to go there. That's the trade
22:48that we want to be capitalizing on.
22:50And then it's just looking for an entry.
22:52So, to recap, just before we take the
22:54trade, we are bullish.
22:56As depicted by our indicator,
22:58external is bullish. Now, the internal,
23:01as depicted by the indicator, has also
23:04shifted from being bearish to being
23:05bullish.
23:06Now, both of these have aligned, and the
23:09indicator gives us a trade idea.
23:11From here, it's about executing on the
23:13trade idea. I'm just going to use the
23:14swing low to the swing high.
23:17Here's the bulk of the volume.
23:19And right here we have the point of
23:20control. This is the maximum point of
23:22volume in this entire bullish
23:24That's going to be my entry point. Entry
23:26can go in here. Stops can go below here
23:29where the failed acceptance was. We can
23:31just target the swing highs up in here.
23:35And that is the entirety of the strategy
23:38with the understanding of why it did
23:40what it did.
23:41And then we just wait to be tagged.
23:44And we see how price trade plays out.
23:47And there is the trade in its entirety.
23:50And so, to recap, from the beginning I
23:52asked you, are we bullish or are we
23:53bearish? Whether you were right or wrong
23:56doesn't matter. What matters is you now
23:58understand why we were bullish, how
24:01using the rules of the indicator we were
24:03able to capitalize on this specific
24:05setup. And again, if you want the
24:07indicator for yourself, you can check
24:08the link in the description.

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